Purchase of Patent
Example
1:
A business purchases a patent for
₹1,50,000 in cash. Show the journal entry
in the books on the date of purchase.
Solution :
- Patent
ek intangible asset hai.
- Hum
jab purchase karte hain, Patent A/c
(asset) debit, and Cash A/c
credit (assuming paid in cash).
Journal Entry Table:
|
Date
|
Particulars
|
L.F.
|
Debit
(₹)
|
Credit
(₹)
|
|
2025-Apr-01
|
Patent
A/c Dr.
|
|
1,50,000
|
|
|
To Cash A/c
|
|
|
1,50,000
|
|
(Being patent purchased in
cash)
|
|
|
|
|
Hinglish Explanation:
- Yeh
intangible asset: Patent.
Price ₹1,50,000 pay kiya, so hum Patent ko debit karte hain, Cash ko
credit.
Amortisation of a Patent
(Straight Line)
Example
2:
A patent was purchased for ₹2,00,000 with a useful
life of 5 years and no residual
value. Compute the annual
amortisation using the straight-line
method and show the journal entry
for the first year.
Solution :
1.
Amortisation of
intangible = (Cost – residual) / useful life.
2.
= (2,00,000 – 0) / 5
= ₹40,000 per year.
3.
Journal at
year-end:
Journal Entry Table:
|
Date
|
Particulars
|
Debit
(₹)
|
Credit
(₹)
|
|
2025-Mar-31
|
Amortisation
Expense A/c
Dr.
|
40,000
|
|
|
To Patent A/c
|
|
40,000
|
|
(Being annual amortisation
on patent)
|
|
|
|
Hinglish
Explanation:
- Har
saal 40k expense book karte hain (Amortisation).
- Patent
A/c ko credit se hum intangible asset ki carrying
value reduce kar dete hain.
Indefinite Life Intangible
(Goodwill)
Example
3:
M/s ABC acquired another firm for ₹10,00,000, and the fair value of net identifiable assets is
₹8,00,000. The difference is recorded as Goodwill
with indefinite life. Show the
entry and discuss amortisation
approach.
Solution :
- Purchase
Price = 10,00,000; Net assets = 8,00,000 => Goodwill = 2,00,000.
- Goodwill
indefinite life par no
systematic amortisation, just annual impairment
test.
Entry:
Net Assets A/c
Dr. 8,00,000
Goodwill A/c
Dr. 2,00,000
To Bank A/c (or
Cash) 10,00,000
(Being acquisition, goodwill
recognized)
(Or you could post net
assets at their respective accounts. Concept wise, we are highlighting that 2L
is goodwill.)
Hinglish
Explanation:
- Indefinite
life intangible (Goodwill) amortise nahi
kiya jata, par impairment test
har saal kiya jata hai.
Impairment of Goodwill
Example
4:
The Goodwill of ₹2,00,000 (from
the above example) is tested for impairment at year-end and found that
recoverable amount is only ₹1,50,000. Pass the impairment entry.
Solution :
1.
Goodwill CV =
2,00,000; new recoverable = 1,50,000 => impairment
loss = 50,000.
2.
We reduce Goodwill
and recognize “Impairment Expense.”
Journal Entry Table:
|
Date
|
Particulars
|
Debit
(₹)
|
Credit
(₹)
|
|
2025-Mar-31
|
Impairment
Loss A/c Dr.
|
50,000
|
|
|
To Goodwill A/c
|
|
50,000
|
|
(Being goodwill impaired
from 2,00,000 to 1,50,000)
|
|
|
|
Hinglish
Explanation:
- Indefinite
intangible (Goodwill) ko jab value kam dikhti hai, hum “Goodwill A/c” ko
credit karke “Impairment Loss” book karte hain.
Computer Software as
Intangible
Example
5:
A firm buys a software license for
₹1,00,000 with an expected life of 4 years. No salvage. Show the annual amortisation using straight line,
and the journal entry for
year-end.
Solution :
1.
Cost = 1,00,000, no
salvage, 4-year life => amortisation = 25,000/yr.
2.
Entry
each year:
|
Date
|
Particulars
|
Debit
(₹)
|
Credit
(₹)
|
|
2025-Mar-31
|
Amortisation on Software
A/c Dr.
|
25,000
|
|
|
To Software
A/c
|
|
25,000
|
|
(Being annual amortisation)
|
|
|
|
Hinglish
Explanation:
- Software
intangible asset → same approach as patent. 25k har saal
amortise.
Trademark with Limited
Legal Life
Example
6:
Purchased a Trademark for
₹3,00,000 with a legal protection
of 10 years. Estimate it has no residual. Calculate annual amortisation under SLM.
Solution :
- Life
= 10 yrs => (3,00,000 – 0) ÷ 10 = ₹30,000/yr.
Table (Amortisation schedule):
|
Year
|
Opening
(₹)
|
Amort
(₹)
|
Closing
(₹)
|
|
1
|
3,00,000
|
30,000
|
2,70,000
|
|
2
|
2,70,000
|
30,000
|
2,40,000
|
|
…
|
…
|
…
|
…
|
|
10
|
30,000
|
30,000
|
0
|
Hinglish
Explanation:
- Trademark
ki legal life 10 saal tak valid. Har saal 30k amortisation.
Brand Name with Indefinite
Life
Example
7:
A brand name recognized at ₹5,00,000 is considered to have indefinite life. Should it be amortised?
Solution :
- Indefinite life intangible: no systematic amortisation. Must do
annual impairment check.
- So,
no amortisation entry. We just keep checking if brand needs impairment.
Hinglish
Explanation:
- Indefinite
intangible = no fixed-year
amortisation, instead do yearly impairment test to see if brand’s value is
still recoverable.
License Renewal (Extension
of Life)
Example
8:
A 5-year license was purchased for
₹2,50,000. After 2 years, the entity renews it, extending total life to 7
years. Show the revised amortisation from year 3 onward if no salvage is
assumed.
Solution :
1.
Original: (2,50,000 /
5) = 50,000/yr. 2 years done => total 1,00,000 amortised. CV = 1,50,000.
2.
Now total life = 7
yrs, but 2 passed => 5 more left.
3.
New annual = 1,50,000
÷ 5 = 30,000 from year 3 onward.
Journal Entry Table:
|
Period
|
Amort
per year
|
Accumulated
|
Carrying
Value
|
|
Yrs 1-2
|
50k × 2 = 1L
|
1,00,000
|
1,50,000
|
|
Next 5 yrs (Y3–Y7)
|
30k/yr
|
–
|
–
|
Hinglish
Explanation:
- Pehle
2 saal old life se amortise kiya. Renewal ke baad extended life par bachi
cost distribute kar dete hain (30k/yr).
Revaluation Model for
Intangible
Example
9:
A trademark is carried at ₹1,00,000. It’s revalued to ₹1,20,000. This
intangible has a remaining life of 4 years. How to record the revaluation under intangible revaluation
model?
Solution :
1.
Increase of 20,000
=> recognized in Revaluation Surplus
(assuming no prior downward reval).
2.
New carrying =
1,20,000. Then amortise over 4 years = 30,000/yr.
Entry for revaluation surplus:
Trademark A/c Dr. 20,000
To Revaluation Surplus
(Equity) 20,000
(Being intangible revalued
upwards)
Hinglish
Explanation:
- IFRS
me intangible assets pe revaluation model rarely used but permissible if
active market. Yahan 1L to 1.2L => 20k Revaluation Surplus.
Internally Generated Brand
Example
10:
ABC spent ₹50,000 on advertisements
to build its brand. Can it be recognized as an intangible asset?
Solution :
- Generally,
internally generated brand
cannot be capitalized. Ad expense is recognized in P&L as expense.
- So
no intangible asset recognized for that 50k.
Hinglish
Explanation:
- Accounting
standards ke hisab se internally developed brand, mast R&D
advertisement cost capital nahi hota, direct expense treat karte hain.
